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Tax Tidbit 8/15/08: 2008 Housing
Act - Homebuyer Credit
The $15.1 billion Housing Assistance Tax Act of 2008 is
designed principally to assist struggling homeowners and the housing
industry. A major provision in the new law helps both the housing
industry reduce its current inventory and existing homeowners sell
their homes. It does so by creating new homeowners.
A new first-time homebuyer credit of up to
$7,500 has been designed by Congress to entice middle-class taxpayers
to get off the sidelines and buy their first home. The IRS anticipates
that for the period for which this temporary tax credit applies
-- for homes purchased after April 8, 2008 and before July 1,
2009 - over $13.5 billion in credits will be claimed.
As with most tax law provisions, in attempting
to make the first-time homebuyer credit fair, Congress introduced
some complicated rules. The basics, however, are fairly straightforward:
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The credit is equal to $7,500 ($3,750
for married individuals filing separately) unless the purchase
price is less than $75,000, in which case the credit is 10
percent of the purchase price.
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Those with higher income are excluded from taking the credit.
The new credit phases out for married couples filing jointly
with modified adjusted gross income (AGI) between $150,000 and
$170,000 ($75,000 and $95,000 for single taxpayers).
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A first-time homebuyer is someone (or a spouse) who has not
owned a principal residence in over three years. Renters, even
if they own a second home, can therefore qualify, as can someone
who stopped owning a home three years ago.
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Qualifying homeowners who purchase within the allowed time
period in 2009 need not wait to file their 2009 returns to claim
the credit; they may do so on a 2008 return. Homebuyers also
can find some immediate relief by lowering estimated tax or wage
withholding to anticipate the credit. In no case, however, will
the IRS present the homebuyer with a check for $7,500 at closing,
although lenders and sellers may make some private financing
arrangements to account for the credit.
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The credit amount ($7,500 or less) must be paid back
to the government over 15 years starting with the second year
after purchase. It is therefore more an interest-free
loan than a permanent tax credit. There are exceptions in cases
of death, and an accelerated recapture provision that may require
an immediate payback of any balance due when the house is sold
or no longer used as a principal residence.
Please do not hesitate to call our offices
if you need a more in-depth explanation of the first-time homebuyer
credit. The amount of the credit, as well as other tax considerations,
are large enough that it pays to review the details before moving
forward on any home purchase in the current real estate market. Please contact
Andrew D. Ross, CPA of Bedard, Kurowicki & Co., CPA's, PC (908)
782-7900 x 113,adr@bkc-cpa.com or
visit www.bkc-cpa.com.
Released 8/15/08
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